TDS on Purchase of Goods (Section 194Q) – Explained

TDS on Purchase of Goods (Section 194Q)

Applicability: Any Individual, being a buyer who is responsible for paying any sum to any seller (being a resident) for purchase of any goods (including capital goods), where the value or aggregate of such values, surpasses ₹50 lakhs in any previous year., shall deduct TDS on purchase of goods.

Applicable w.e.f.: 1st July, 2021.

Rate of TDS: 0.1% (5% in case PAN is not furnishedof the purchase amount surpasses ₹50 lakhs.

Explanation: The amount on which TDS shall be charged is the sum left after deducting ₹50 lakhs from the total amount.

[Total amount(-) ₹50 lakhs= amount on which TDS shall be charged]

Time of deduction: Earlier of the following:

  • At the time of credit of such sum to the account (even if Suspense A/c) of the seller
  • At the time of payment by any mode

Conditions for TDS on Purchase of Goods:

The tax shall be deducted only when the following conditions are satisfied:

  • Purchase of goods from a resident seller
  • Goods purchase for a value or aggregate of value surpasses ₹50 lakhs in any previous year.
  • The person buying shall fall into the meaning of buyer as provided for this section

BuyerFor the purpose of this section, buyer means a person whose total sales, gross receipts or turnover from the business, surpasses ₹10 crores during the financial year (FY). immediately preceding the financial year (FY) in which goods are purchased.

Further, the Central Government may, by notification in the Official Gazette, specify the list of persons who shall not be considered as buyers for this matter.

Note: As of now, there’s no such clarification in regards to the inclusion of GST in the total value of goods. Hence, for the purpose of computing the total turnover, the amount of GST shall be included.

Role of Buyer & Seller:

Buyer: To deduct TDS.

Supplier: Obtain a declaration from buyer in regards to timely deduction and payment of TDS.

Applicability on imports:

Since this section is applicable only when purchases are made from a resident seller, hence no TDS shall be deducted in case of imports.

Due date of depositing TDS to the Govt.:

  • for the months of April- February: 7th of next month.
  • for the month of March: 30th April.

Due date of TDS return:

QUARTERPERIODDUE DATE
Q-1April – June31st July
Q-2July – September31st October
Q-3October – December31st January
Q-4January – March31st May

Read This:- What is an Input Tax Credit under GST (ITC)?

ExceptionsThe provisions of this section shall not apply to transactions where:

  • tax is deductible under any other section
  • tax is collectible under section 206C other than a transaction to which sub-section (1H) of section 206C applies

Explanation: This implies that, if in case TDS or TCS is applicable on a transaction under some different section(s), then provisions of section 194Q shall not apply.

Further, in case both sections 194Q and 206C(1H) are applicable then in that case the provisions of section 194Q shall prevail.

Non- complianceAs per section 40a(ia) of Income Tax Act 1961, in case of non- deduction/ non- payment of TDS, amount to the extent of 30% of the value of transaction on which TDS was to be deducted shall be disallowed to the buyer.

Explanation:

SITUATION-

1. Goods purchased: ₹60lakhs

2. Value of goods on which TDS is chargeable u/s 194Q: surpass of ₹50 lakhs i.e., ₹10 lakhs

3. TDS @ 0.1% on ₹10 lakhs: ₹1000

4. TDS not deducted by the buyer

What will be amount of disallowance?

Answer: Amount of disallowance: 30% of ₹10 lakhs i.e., ₹3 lakhs.

SECTION 194Q V.S. SECTION 206C(1H)

In the existing section 206C of the Income Tax Act, 1961, a new sub- section (1H) was inserted vide the Finance Act, 2020 which provides that a seller having turnover of more than ₹10 Crores in the preceding financial year (FY) is required to collect from the buyer, TCS @ 0.1% of the consideration received, for sale of goods surpasses ₹50 lakhs. This provision was made effective from 1st October, 2020.

Introduced Section 194Q, in the name of resolving the ambiguities as created by Section 206C(1H), which in essence doubled up the issues.

Which section will prevail in case of overlapping between section 194Q and 206C(1H)?

Ans. We have already noted in the above-mentioned points that, if both the sections are applicable in a particular case at the same time, then section 194Q shall prevail over section 206C(1H).

Difference between section 194Q & section 206C(1H):

PARTICULARS194Q206C(1H)
PurposeTax to be deductedTax to be collected
Responsible personBuyerSeller
Applicable w.e.f.1st July, 20211st October, 2020
Time of deduction/ collectionPayment or credit whichever is earlierReceipt
Rates0.1% (5% if PAN not available)0.1% (1% if PAN not available)
Overriding effect194Q prevails over 206C(1H)

Read This:- How to Enable TDS in Tally ERP9 | Chapter-7

Disclaimer: All details given notification by Govt. If any types of mistake in this article, We are not responsible for it.

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